Making Energy-transition headway: A Data driven assessment of German energy startups
Introduction
Energy-transition is a dominant topic in Germany. As a result, the energy sector in Germany is experiencing a remarkable change. This sector strives to achieve a secure, sustainable, and affordable to everyone energy system [1]. Current energy-transition policies are limiting the use of nuclear and fossil-fuels energy sources [2]. Renewable energy has emerged as a strong alternative [3]. Germany has declared a 80–90% reduction aim in greenhouse gas accompanying an electricity supply system based completely on renewable energies by 2050 [4]. In order to achieve these goals, the government, policymakers, financial institutions, research and development (R&D) organizations are working together. As the matter of fact, it is challenging to quantify the energy-transition impact on society. It goes without saying, energy-transition has offered a unique opportunity to entrepreneurs and businesses in Germany. It is clear that it is not only about how energy is generated, distributed, and consumed, but also stimulates innovation (technical, business and social), creating jobs, and engages consumers, even prosumers, participation in the entire value chain. Similar to other sectors energy sector also has to face a digital transformation wave that is hoped to be a key enabler for more sustainability in the energy sector [5]. Over the past decade, the incorporation of new technologies such as Artificial intelligence (AI), Blockchain, Digital-Twin (DT), Internet of Things (IoT), and Fifth Generation communication technology (5G), are changing the landscape of the energy sector. Rather, these technologies have emerged to serve a completely distinct purpose, but at the same time, they are also supporting startups to innovate and offer new value added. For instance, smart-meter, demand-response enabled home appliances, connected home, advanced monitoring and visualization have improved customer digital experience and encouraged new service engagement opportunities. Alongside business reform, technologies supporting decentralization and bi-directional flow of energy have opened a new opportunity for the active participation of consumers.
In continuation, digitalisation of the energy sector has empowered businesses to collect and analyse big data. Such data-driven evolution also has enabled new business models. At this point, it is important to understand the diffusion of technologies and changing business models in the context of innovative startups. Innovation is a very generalized term and in many cases, it has a domain specific definition. In the framework of energy and startups nexus, we have defined innovative startups as mentioned in [6]:
“Startups with patents, novel or improved products, services and customer experience, facilitating, energy production, distribution, transportation, storage, and energy efficiency”.
As the seeds of innovation identification, the proposed study has considered only startups founded between the year 2014 and April 2020. Additionally, non-governmental organizations (NGOs), energy consulting services, energy service companies (ESCOs), mergers and acquisitions (M&A) are not considered in this study. Also, startups founded in nuclear and conventional fossil-fuel (including the gas industry) sectors are not taken into account.
In the context of the German energy sector, a number of studies had covered economic, geographical [7], and lead market segmentation [8] as key indicators to monitor entrepreneurship in the energy sector. These studies count on commercially available databases and business registration documents. In the available company databases, the activities linked with technology and business model development by energy startups are underrepresented. The interest in digitalisation is also missing. Finding from [9] has presented a framework to classify energy business models. The study had covered 69 prototypical business models based on their importance in the energy-transition. Notwithstanding, the notion of business models practiced by startups is absent.
Startups in the energy sector closely work with investors, technology providers, regulators and funding agencies. In this sense, the overall behavior of energy startups is very dynamic and not easy to monitor using a unique data source. Thanks to the advanced data analytic techniques that allow the collection and analysis of data from different sources, innovation activities, the diffusion of digital technologies and new business models become easier to monitor. At the same time a need to monitor and evaluate energy policies and the impact of digital technologies on energy transformation increases. Guidance to speed up the energy transition and use the full potential of digitalisation as an enabler for it are of very high importance for policymakers and stakeholders in the energy sector.
As a novelty in this research, the existing knowledge and experience on the diffusion of energy innovation are combined with state-of-the-art data analytics to broaden and speed up the assessment and evaluation of the diffusion. Until now there is only limited knowledge to what extent these additional unstructured data can be used to improve and speed up the monitoring of new developments and innovations in the energy sector. The conglomeration of structured and unstructured data is collected from numerous sources and analysed using natural language processing. The key focus of the proposed study is centered around technology diffusion, business model identification, and stakeholder involvement in the German energy sector.
The contribution of this study has been to confirm that the majority of innovative energy startups are the early adopter of digital technologies. Notably, artificial intelligence, internet of things and big-date (or Data) are the key information and communications technologies (ICT) driving the digital transformation of the energy sector in Germany. Further, technologies like digital-twin and cloud are new entrants. Investment in renewable technologies is still most preferred over the other competitive sectors like energy storage and trading etc. Consequently, startups in the renewable sector are expected to appear as a larger sample in the collected data set.
Patent and funding are other benchmarks to monitor the effectiveness of energy-transition policies as well as the participation of startups in research & development activities.
In numerous cases, startups are struggling to expand their market quickly and getting back the return of investment (RoI). These are also a major concern for venture capitalists (VCs), incubators, and individual investors [10]. In entrepreneurial literature, such issues are commonly referred to as Valley of death [11]. To act upon these challenges, startups are practicing repeatable and scalable business models with minimum investment [12]. This is also exemplified in the work undertaken in [13]. This case study confirms the use of digital platforms by German SMEs. Platforms are emerging business models in the energy sector that empower consumers, producers and service providers to create a multi-sided marketplace [14]. Hereafter, the finding reveals the clear inception of platform based business models in the German energy sector that offers such replicability and scalability. Utmost use cases for platform models are available in the energy trading and electric mobility sector.
Taking into account the discussion above the proposed work seeks to answer the following questions:
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Technology focus: Which technologies are leading the energy-transition and how are they connected with energy startups?
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Business model focus: Which new business models are emerging and taking lead over the conventional business to business (B2B) and business to customer (B2C) models?
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Funding, stakeholders and government policies: Who are the key funding actors, stakeholders and, which government policies are supporting energy startups in Germany?
The remainder of the paper is organized as follows. The following section discusses the research motivation. It also looks at current practices and state-of-the-art. Section “Energy startups policies and funding programs in Germany” outlines the connection between existing energy startup’s policies and startup creation in Germany. Further, Section “Data and methodology” describes the methodology and data collection followed by results and discussion in Sections “Results” and “Discussion”, respectively. Section “Conclusions and future perspectives” concludes the findings and future perspectives.
Section snippets
Research motivation and State-of-the-art
Technologies are underlying drivers of the energy sector transformation. Over the decade, several emerging technologies have been successfully intervened in the energy sector. Federal Ministry of Economics and Energy (BMWi) in Germany in collaboration with state governments (Bundesländer) tries to setting up policy grounds and facilitating funding to attract various actors from the energy startup ecosystem. The High-Tech Strategy 2025 (www.bmbf.de/en/high-tech-strategy-2025.html) as well as the
Energy startups policies and funding programs in Germany
Favorable government policies, startup friendly financing mechanisms, and optimal conditions for entrepreneurs have made Germany one of the most preferred ground for energy startups. Berlin, Munich, and Hamburg are top cities with numerous incubators, accelerators, and talent support. The federal ministry for economic affairs and energy (BMWi) is advocating innovation and new business creation in the energy sector. In order to boost the culture of entrepreneurship in the energy sector, various
Data and methodology
The selection of a well-founded data source is an initial step to set up a ground for the analysis. It is, therefore, important to find a database that provides a listing of startups and their background information such as address, registration date, business activities, business models, etc. Unfortunately, as of now, such data sets don’t exist that satisfy these criteria. A holistic approach of data collection is required to capture the wide range of startup activities. There are diverse
Results
The following part describes in greater detail the technology and business models practiced by the energy startups in Germany.
Discussion
The current study covers the startups in the German energy sector founded between 2014 to 2020. It is putting emerging technologies and digital business models in the center of the analysis. The development of startups is in line with current policy priorities for energy technology innovation. Clean energy technologies (Startup Cluster A and C) are the leading focus of German energy startups. It has to be validated that missing technologies are not part of the startup ecosystems or if they are
Conclusions and future perspectives
Energy startups are one key dimension of a successful energy-transition. Economies like Germany and its energy-transition could benefit from nurturing and promoting innovation and startup culture in the energy sector to integrate technology and business model innovation. Federal and regional governments in Germany are committed in this regard with various policies and programs laid out to endorse startups and innovation in the energy sector. The present study was designed to determine the role
Data availability
A sample of data is available from the corresponding authors. Entire data set could not be shared due to a non disclosure agreement (NDA) with data collecting services.
Declaration of Competing Interest
The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
Acknowledgment
The authors would like to acknowledge Fraunhofer society and Innovation System Data Excellence Center (ISDEC) program for the financial support to the project ‘Data driven assessment of energy startups in Germany’.
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